Saving for retirement can seem like a daunting task. After all, how do you plan so far ahead? And how can you possibly save enough to last through a long retirement? Take heart: It's not as complicated as you might think. Here are a few steps to help you get started in the best way possible.
1. Set a Goal
Even if you don’t feel like you can save a lot of money now, it’s best to get a good idea of how much you should be socking away each year in order to reach the goal of a comfortable retirement.
Try one of the many online retirement calculators, like the one sponsored by the non-profit Employee Benefit Research Institute to get an idea of exactly how much that might be. The calculator will ask you what return you expect to get on your investments in pre-retirement years -- 7% to 8% is a good guess. Post retirement, that should be more like 6%. Estimate about 2.5% for inflation. As a rule of thumb, most people hope to live on at least 70% of their current incomes in retirement.
2. Open the Right Accounts
Your savings can grow without paying taxes until you withdraw the funds -- and you can generally put money away without paying taxes on it in the current year -- if you invest in any of a number of tax-sheltered retirement accounts, including employer sponsored 401(k)s or your own personal IRAs.
3. Diversify Your InvestmentsYou will get the biggest bang for your buck by putting some money into stocks for inflation-beating growth, and some into bonds for stability. Put much more into stocks than bonds if you are young, then shift more into bonds as you near retirement. Choose mutual funds; you’ll get more diversification than you would by picking your own securities.
